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Checking Accounts Help

Any eligible individual may establish an HSA. Eligibility is determined on a monthly basis. To be eligible, an individual must meet all of the following requirements.

Covered under a high deductible health plan (HDHP) on the first day of the month

Generally not covered by any health plan that is not an HDHP (exceptions exist for coverage that is not part of an HDHP for accidents, disability, dental care, vision care, long-term care, or permitted insurance)

Not enrolled in Medicare

Not able to be claimed as a dependent on another person’s tax return

The owner of an HSA is called the "HSA owner."

NOTE: Permitted insurance is insurance under which substantially all of the coverage provided relates to liabilities incurred under workers’ compensation laws, tort liabilities, liabilities relating to ownership or use of property (e.g., automobile insurance), insurance for a specified disease, or illness and insurance that provides a fixed payment for hospitalization.

A health plan is an HDHP if the plan satisfies the following annual deductible and out-of-pocket expense requirements for self-only or family coverage.

Self-only coverage: Annual deductible of at least
$1,350 for 2018 and 2019, and an out-of-pocket expense (deductibles,
co-payments, and other amounts, but not premiums) cap of $6,650 for 2018 and
$6,750 for 2019.

Family coverage: Annual deductible of
at least $2,700 for 2018 and 2019, and an out-of-pocket expense (deductibles,
co-payments, and other amounts, but not premiums) cap of $13,300 for 2018 and
$13,500 for 2019.

Family coverage with individual deductibles:In cases where family
coverage has individual deductibles, the plan is considered an HDHP if no
amounts are payable from the health plan until the family has incurred covered
medical expenses in excess of the minimum annual deductible ($2,700 for 2018
and 2019), and the plan has an out-of-pocket expense cap of $13,300 for 2018
and $13,500 for 2019.

NOTE:These amounts may be increased for annual cost-of-living adjustments.

EXAMPLE: Which plan is considered an HDHP?

Plan A: Steve Johnson
purchases health insurance for himself and his family for 2019. His plan has a
$5,000 family deductible with a $1,000 individual deductible.

Plan B: Steve Johnson
purchases health insurance for himself and his family for 2019. His plan has a
$5,000 family deductible with a $2,700 individual deductible.

Answer: Plan A provides payment of covered medical expenses for
any member of Steve’s family if the member has incurred covered medical
expenses during the year in excess of $1,000, even if the family has not
incurred covered medical expenses in excess of $2,700. Thus, benefits are
potentially available under the plan even if the family’s covered medical
expenses do not exceed $2,700. Because Plan A provides family coverage with an
annual deductible of less than $2,700, the plan is not an HDHP.

Plan B satisfies the requirements for an HDHP because
the plan only provides payment for covered medical expenses if any member of
Steve’s family incurs covered medical expenses during the year in excess of
$2,700.

Yes. A network plan is a plan that generally provides
more favorable benefits for services provided by its network of providers than
for services provided outside the network. When determining if a plan is an
HDHP, the out-of-pocket expense limits for services provided outside of a
network of preferred providers are disregarded. In other words, if a plan
otherwise meets the requirements of an HDHP, but the out-of-pocket expense
limits for out-of-network services exceed the maximum annual out-of-pocket
expense limits allowed for an HDHP, the plan will still be considered an HDHP.

EXAMPLE: Is the plan described below an HDHP?

Sarah has self-only coverage
under her health plan for 2019. She may access services from either a network
of preferred providers, or she may choose to receive services from
out-of-network providers. When she uses in-network providers, her health plan
has a $1,350 deductible and a $4,000 out-of-pocket expense limit.
Alternatively, when she accesses services from out-of-network providers, her
deductible is $2,000, and her out-of-pocket expense limit is $12,000.

Answer: Yes. Sarah’s plan is
an HDHP because it meets the deductible and out-of-pocket expense restrictions
for self-only coverage when she uses network providers. Out-of-network provider
expenses are disregarded when determining if an individual has an HDHP.

A plan will still qualify as an HDHP even though it may not have a deductible (or has only a small deductible) for preventive care. Except for preventive care, in order to be an HDHP, a plan may not provide benefits for any year until the deductible for that year is met.

Any eligible individual can establish an HSA with a qualified HSA trustee or custodian. An eligible individual who is an employee may establish an HSA with or without involvement of the employer.

Beneficiaries: Although naming beneficiaries is not required, an HSA owner should name a beneficiary(ies) to receive the HSA assets upon his death. HSA owners also may wish to change their death beneficiaries.

Any insurance company or any bank (including a similar financial institution as defined in section 408(n)) can be an HSA trustee or custodian. In addition, any other person already approved by the IRS to be a trustee or custodian of IRAs or Archer medical savings accounts (MSAs) is automatically approved to be an HSA trustee or custodian.

Persons other than banks, insurance companies, or previously approved IRA or MSA trustees or custodians may request approval to be a trustee or custodian in accordance with the procedures set forth in Treasury Regulation Section 1.408-2(e) (relating to nonbank trustees).

Although proof is not required, a trustee or custodian may ask for proof or certification that a potential HSA owner is eligible to establish an HSA. For example, the trustee or custodian may request documentation that verifies that the individual is covered by a health plan that meets all of the requirements of an HDHP.

If an employer chooses to make HSA contributions for one employee, the employer generally must make comparable contributions on behalf of all eligible employees with comparable coverage during the same period, which is known as the "comparability rule." Contributions are considered comparable if they are the same amount or the same percentage of each employee's deductible under the high deductible health plan (HDHP). The comparability rule is applied separately to part-time employees (i.e., employees who are typically employed for fewer than 30 hours per week). Employers who do not comply with the comparability rule during a period will be subject to an excise tax of 35 percent of the aggregate amount contributed by the employer to HSAs for that period.

EXAMPLE: Shady Oaks Spa offers two health plans, including an HDHP with self-only coverage. For each employee electing the HDHP with self-only coverage, the employer contributes $1,000 per year to an HSA on behalf of the employee. For employees who do not elect the HDHP, the employer makes no HSA contributions. Shady Oaks Spa’s plan and HSA contributions satisfy the comparability rule.

An HSA may be offered as an option under an employer’s cafeteria plan. In other words, an employee may elect to have amounts contributed as employer contributions to an HSA on a salary-reduction basis through the cafeteria plan. In fact, an employer could include both an HSA and an HDHP as options under its cafeteria plan, thus allowing an employee to contribute to the HSA and pay the premiums for the HDHP through salary reduction.

NOTE: The comparability rule does not apply to contributions made through a cafeteria plan.

Contribution deadline: An HSA must be established and HSA contributions must be made by the eligible individual’s tax return due date for the year, not including extensions (i.e., April 15). This same deadline applies regardless of who makes the contribution.

One or more payments are permitted: Contributions for the year can be made in one or more payments. Although the annual contribution limit is determined monthly, the maximum contribution may be made on the first day of the year.

Contributions other than rollovers must be in cash: Annual contributions must be made in cash. Assets from Archer MSAs and other HSAs may be rolled over in-kind to an HSA.

Aggregated contributions: All HSA contributions, regardless of who makes the contribution, are aggregated for purposes of applying the contribution limit. Qualified HSA funding distributions and Archer MSA contributions also are aggregated for purposes of applying the HSA contribution limit made for the same calendar year.

General rule: For an eligible individual that is covered by the same HDHP plan for the entire calendar year, the maximum annual contribution is the statutory limit of $3,450 in 2018 for those with self-only coverage, or $6,900 for those with family coverage. An HSA owner is treated as being covered by the same HDHP coverage (self-only or family) for the entire year as the coverage held on December 1.

NOTE:Contribution amounts may be adjusted for cost-of-living increases.

Contributions may be made by or on behalf of an eligible individual even if the eligible individual has no compensation, or the contributions exceed his or her compensation.

Catch-up contributions: Eligible individuals may make HSA catch-up contributions of up to $1,000 annually. For eligible individuals who are married and have family coverage, each spouse who is an eligible individual may make a catch-up contribution to his or her own HSA.

If an eligible individual will attain age 55 or older by the end of the calendar year, and he or she is an eligible individual for the entire year, he or she may make a full catch-up contribution.

If an HSA owner is HSA-eligible for only a portion of the year, he may make a full-year contribution if he remains HSA-eligible throughout a 13-month “testing period.” The testing period runs from the first day of the last month of the initial eligibility year through the end of the 12-month period following that month.

If HSA owners fail to maintain eligibility for the entire testing period, they must prorate the contribution limit for the number of months they were eligible. HSA owners must include ineligible contributions in gross income and pay a 10 percent testing period failure penalty tax on the ineligible amount.

HSA eligibility is determined on the first of each month. If an HSA owner changes HDHP coverage from self-only to family or family to self-only, she can add up the monthly limit for each month she was covered to determine her annual contribution limit, or she can determine her contribution limit as if she was covered by the same HDHP coverage for the entire year as the coverage held on December 1. With this rule, the HSA owner may increase, but does not have to decrease the contribution limit. For example if an HSA owner has self-only coverage throughout 2018, but switches to family coverage on November 1, 2018, and has family coverage through December 31, 2018, the HSA owner’s contribution limit is the family coverage contribution limit ($6,900 for 2018).

Once an individual enrolls in Medicare, contributions, including catch-up contributions, cannot be made beginning with the month the individual enrolls.

EXAMPLE: Pearl, who is covered under an HDHP with self-only coverage, attains age 65 and enrolls for Medicare benefits on March 1, 2018. Her 2018 contribution limit is 2/12 of the statutory contribution limit. She may make contributions for January and February, but may not make any contributions for March through December 2018 or thereafter.